Brussels, 16 May 2022
The Commission has today proposed targeted adjustments to the European Union’s financial rules, known as the Financial Regulation.
The main objective of the proposal is to align existing rules with the current long-term budget 2021-2027, and make further improvements to the already existing very high standards of EU financial rules, in view of developing an even more transparent, better protected and more agile budget.
Commissioner Johannes Hahn, in charge of Budget and Administration, said:
“Today’s proposal seeks to grantcertainty to EU funds’ recipients, while making the budget more responsive at times of crises and making budget management digital by default. Recent experiences have taught us that being prepared to address the unexpected makes a difference for all. I look forward to constructive discussions with the European Parliament and Member States in the Council in view of putting this rules into place promptly, and to the benefit of all.”
The main elements of today’s proposal seek to secure:
Increased transparency of the EU budget by:
- improving public information on the EU budget use and on the recipients of EU funding through an improved public database covering all methods of budget implementation,
- reinforcing the effectiveness of control and audits with the mandatory collection of data on the recipients of EU funding including their beneficial owners,
- using an integrated IT system for data-mining and risk-scoring in all methods of EU budget implementation to identify risks of irregularities, fraud, conflicts of interest, amongst others.
A better protected EUbudget by:
- strengthening the Commission’s early detection and exclusion system, thus being able to identify EU funding recipients that are in breach of EU rules, and to exclude them from funding,
- broadening the scope of this system to the shared management of budget implementation (where the Commission implements the budget together with the EU Member States), e.g. for funding from the European Regional Development Fund or under the Recovery and Resilience Facility,
- updating the definition of conflict of interests, which gives grounds to reject participants from award procedures should conflict of interests be detected,
- increasing efficiency and quality of controls and audits through digitalisation and the use of emerging technologies, in line with the Commission’s commitment to digital practices.
A more agile EU budget by:
- providing a clear legal framework for procurement in crisis situations, for example by enabling the EU institutions to procure on behalf of the EU Member States or to act as a central purchasing body,
- adding a new budget implementation instrument to ensure that the Commission can contribute to global initiatives (i.e. multi-donor activities, which involve pooling funds supporting global goals in areas such as climate change, education, fight against AIDS, tuberculosis and malaria).
Next steps
Today’s proposal will now be subject to negotiations by the European Parliament and EU Member States in the Council in view of a swift adoption. The Commission will work hand in hand with these two institutions to ensure that EU funds applicants and recipients can start benefiting from the new rules as soon as possible.
Background
The Financial Regulation sets out key rules for budget management, how EU funding is provided to beneficiaries, and how the EU institutions manage their own finances. It sets out rules on how the EU institutions procure works, supplies and services, award grants and prizes, and make use of financial instruments or budgetary guarantees.
In 2018, the EU financial rules went through a major revision, to bring them in line with the previous long-term budget 2014-2020 and to prepare for the 2021-2027 Multiannual Financial Framework. The 2018 Financial Regulation incorporated the previous Rules of Application into a “single rule book” allowing all general financial rules to be included in the Financial Regulation.
However, following the adoption of the 2021-2027 Multiannual Financial Framework and Union spending programmes, a further amendment was deemed necessary.
To that end, a public consultation was carried out in July-October 2021 and its feedback was carefully considered. Most of this feedback is duly reflected in today’s Commission proposal.
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- Commission proposal
- Questions and answers
- Financial Glossary
- How EU budget is spent
- EU budget law
- EU Budget on-line
Questions and Answers: Targeted adjustments to the Financial Regulation
Brussels, 16 May 2022
Overview – What is the Financial Regulation?
The Financial Regulation lays down the principles and general financial rules for establishing, implementing and controlling the EU budget. It provides guidance to beneficiaries how they can receive EU funds and what rules they need to follow to demonstrate these funds have been well-spent.
In addition, the Financial Regulation sets out rules on how the EU institutions procure works, supplies and services, award grants and prizes, and make use of financial instruments or budgetary guarantees.
The EU financial rules went through a major revision in 2018. Why is another revision necessary?
A substantial revision of the Financial Regulation took place in 2018, establishing simpler, more transparent, and more flexible rules for the spending of EU funds. This revision also helped make sure the EU budget is better protected.
The trigger for the 2022 proposal is the need to further align the Financial Regulation with the rules governing the 2021-2027 long-term budget (multiannual financial framework, MFF) and the NextGenerationEU recovery instrument. The proposal aims to maintain a single rule book governing the EU spending, making sure that all general financial rules are included in the Financial Regulation. This will provide greater legal certainty for EU funds’ recipients and for the EU institutions managing the spending of the budget.
Finally, the proposal reflects declarations made and agreements reached by the EU institutions in the context of the MFF negotiations.
What do you mean by “targeted adjustments”?
The current proposal builds on the already existing very high standards of EU financial rules. It focuses on adjustments that are really necessary, striking a balance between stability and alignment with the MFF package, and some very concrete improvements and simplifications.
What are the elements of the proposal?
The proposal includes targeted improvements and simplifications which seek to make our budget even more transparent, better protected and more agile.
The main novelties include:
- Increased transparency by improving public information on EU funding recipients and the use of the EU budget, reinforcing the effectiveness of control and audits with the mandatory collection of data on the EU funding recipients and their beneficial owners and using an integrated IT system for data-mining and risk-scoring.
- Better protection of EU financial interests, for example by strengthening the system which allows to identify EU funding recipients which are in breach of EU rules, and to exclude them from funding.
- Improved agility of the EU budget by providing a clear legal framework for procurement in crisis situations and by adding a new budget implementation instrument to ensure that the Commission can more easily contribute to global initiatives.
Increased transparency of the EU budget – How do the new rules provide for greater transparency in the way EU funds are spent?
The proposal aims to ensure better information is offered to the public on how the EU budget is spent and who the recipients of EU funding are.
To that end, those implementing the budget under shared or indirect management should send to the Commission information on the recipients of EU funding at least once a year. The Commission will combine it with the information of beneficiaries of the budget under direct management, consolidate, centralise and publish this information on a single website.
This will ensure that comprehensive information about all beneficiaries of EU funding is publicly available online, independently of the management mode.
What does the Commission propose to improve the collection of data for control and audit purposes?
The proposal introduces a single integrated IT system for data-mining and risk-scoring to improve the quality and interoperability of data. This will be beneficial for control and audit purposes – it will help identify the recipients of EU funding which misuse the funds and serves as an effective tool to address irregularities or prevent, detect, investigate and correct fraudulent behaviour.
In addition, Member States’ authorities would need to use a central Commission IT system to feed and analyse data on the recipients of EU funding. This would make it easier to detect and identify risks of fraud, corruption, double funding, conflict of interest and other irregularities as early as possible in the process of providing EU funding to recipients. .
Enhanced protection – How will the amended EU financial rules enhance the protection of the EU budget?
The Commission is already running an early detection and exclusion system, which makes it possible to identify and stop funding to recipients which do not respect EU rules. It currently applies to funds under direct management.
Today, the Commission is proposing to extend this system to the shared management mode. In this way, it will be easier to detect fraudulent economic operators and avoid selecting them in award procedures. This will ensure a better protection for the EU budget at an early stage of the process.
In addition, today’s proposal adds new autonomous grounds for excluding beneficiaries from EU funding:
- refusal to cooperate in investigations, checks or audits carried out by an authorising officer, the European anti-fraud office OLAF, the European Public Prosecutors’ Office, or the European Court of Auditors,
- incitement to hatred or discrimination,
- breach of conflict of interest avoidance rules.
How will the amended financial rules contribute to the digital Commission?
The proposal supports the Commission’s commitment to be “digital by default”. The revised use foresee greater use of digitalisation and emerging technologies such as data-mining, machine learning, robotic process automation and artificial intelligence to help increase the efficiency and quality of controls and audits. This should also make it easier to guarantee EU funds have been properly used, and at a lower cost.
More agile EU budget – How will the new rules help the EU react more effectively in crisis situations and to global initiatives?
To help the EU react more efficiently in crisis situations, the proposal introduces:
- rules reflecting current practice on non-financial donations, providing a clear legal framework for the EU institutions to donate goods, services, supplies or works. This will also provide a stable legal basis for future emergency situations, more transparency, accountability and legal certainty for recipients of donations.
- new rules in the area of procurement in crisis situations which will enable EU institutions or bodies to procure on behalf of Member States or to act as a central purchasing body. This central purchasing body would be able then to donate or resell supplies and services to Member States, and launch joint procurement procedures even where the EU institutions do not acquire services and supplies for themselves.
- new budget implementation instrument for EU contribution to global initiatives covering operations complying with EU standards. Global initiatives are multi-donor, pooled funds supporting a global goal (e.g. climate change, education, fight against AIDS, Tuberculosis and Malaria). Participation in these funds can often be considered as an efficient way to contribute to the achievement of EU key policy objectives.
How will amended financial rules contribute to the achievement of the European Green Deal?
Today’s amendments seek to ensure that EU budget fully supports the implementation of the European Green Deal. To this end, an explicit reference to the “do-no-significant-harm” principle is made, in line with the Commission’s commitment to sustainable financing and the green transition.
Finally, the proposal foresees that when relevant, calls for tenders in public procurement procedures include green award or selection criteria to incentivise economic operators to offer more sustainable solutions.
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New spending rules for EU budget are disappointing, say S&Ds
According to the S&D Group, the EU should be able to reallocate unspent money to tackle crises like pandemics, or refugee flows due to conflicts in third countries. Yet, the new spending rules in the Financial Regulation, proposed by the European Commission, do not give the much needed flexibility for EU money to be used in cases of unforeseen circumstances, say the Socialists and Democrats. The S&D Group already made its ideas very clear at the end of last year when the European Parliament voted its report with the elements it found crucial to be included in the legislative proposal of the European Commission.
Nils Ušakovs, S&D MEP and EP negotiator on the issue in the EP’s committee on budgets, said:
“Unfortunately, the European Commission’s proposal falls far below expectations. The new procedures on how we spend the EU budget should reflect the reality around us. We have a new plurennial European budget, we have the Next Generation EU instrument, and we talk so much about the rule of law as an absolute prerequisite to get EU money. Yet, the content of the proposal for a new Financial Regulation is very far from all of these debates, as if we never discussed it in detail with the European Commission. Where is the respect for social and labour standards? Where is the social conditionality in a world where the EU is a champion in defending workers’ rights? It is such a shame to miss this opportunity to update our single rulebook to keep up with the times and increase the democratic legitimacy of the Union as a whole. Therefore, we strongly urge the European Commission to reconsider its ideas and make a new proposal that reflects the reality and the role the European Parliament must have.”
Claudiu Manda, MEP and S&D negotiator on the issue in the EP’s committee on budgetary control, said:
“The nature of the European Parliament and its committee on budgetary control means we, elected by our citizens, exercise control over how EU money is spent. This is democracy and this makes us different from other parts of the world where people are fighting for democracy. How do we make sure the EU budget is spent properly if the rules and procedures for this, as proposed by the European Commission, do not include the European Parliament in its legitimate role? Our group would like to believe this is just a bad example of a bureaucratic approach by the Commission to a very important issue, especially after so many messages we sent with EP reports, hearings and debates.”